Bank lending to SMEs slumps despite CBN’s support for the sector

Commercial bank lending to small enterprises in Nigeria has slumped considerably despite sustained Central Bank of Nigeria efforts to support the sector BusinessDay’s investigation has revealed.

According to our CBN source, the CBN monetary policy directive of 1992 mandated banks to make available to SMEs and the agriculture sector, 20 per cent of their total lending portfolio. This started well in 1992 with the banks achieving 48.8 per cent lending for SMEs and the agriculture sector, but fell to 0.17 per cent of banks’ total credit to the economy in 2008.

BusinessDay’s investigation revealed that in 1992, N41.8 billion was banks’ total credit to the economy whilst total credit to SMEs and agriculture which in Nigeria, is largely smallholder farming was N20.4 billion. In 2008, total lending to the economy was N7.7 trillion as against N12.3 million for SMEs and agriculture.

Since 1964, government has put in place institutions that would make small businesses have access to fund. We can cite the case of the defunct Nigerian Industrial Development (NIDB), the Nigerian Economic Reconstruction Fund (NERFUND), the Bank for Commerce and Industry (NBCI) and the recently created Bank for Commerce and Industry (BOI) which absorbed NBCI and was supposed to have absorbed NERFUND too.

There were others like Nigerian Agricultural and Rural Development Bank, Agriculture Credit Scheme, and of course the latest on the list – N500 billion SME Development Fund and the SME N200 billion Guarantee Scheme which the Central Bank of Nigeria introduced recently.

Benjamin Adamu, deputy director, Development Finance Department of the CBN who spoke on behalf of the CBN Deputy Governor, Corporate Services, Suleiman Barau at an ENABLE-organised forum in Abuja recently, gave insight into the new scheme of the CBN for SMEs. He said Central bank governor, Lamido Sanusi, has made it a personal crusade to reverse the decline of SMEs since his appointment last year.

There were also a myriad of foreign funds that came in from the World Bank, IMF, IFC, according to Adamu. There was of course the Small and Medium Enterprises and Equity Investment Scheme (SMEEIs) now moribund, which SMEs enjoyed, courtesy of the Bankers Committee.

The CBN governor, recently, in an NTA network programme, said SMEs put too much pressure on banks whereas there are other sources of funding that they can explore. He cited the insurance sector, the stock market, venture capital and other financial institutions like the BoI and NERFUND, etc, though he noted that some of these institutions, insurance for an instance, need to be better developed to make them useful to borrowers.

But it must be mentioned that the benefit of hindsight should make us watch over the banks to ensure transparency in the disbursement of the new funds made available by the apex bank for SMEs. The N200 billion Agriculture Fund set aside by the federal government, through the Nigerian apex bank for the growing of the agriculture sector, which was enmeshed in controversy, is a good case in point.

It would be recalled that the National Economic Council directed that the N100 billion of the N200 billion deposited in two commercial banks should be returned to the Central Bank of Nigeria (CBN) for safe keeping. Facts that emerged from the industry confirmed that the N100 billion was recalled for lack of transparency in the choice of banks that the CBN appointed for the disbursement of the fund to commercial farmers. It would be recalled that choice of only First Bank Plc and UBA Plc as managers of the N200 billion fund drew the ere of other banks who felt sidelined by the apex bank during the tenure of Chukwuma Soludo.

Industry sources were at a loss then why some banks which have robust structures for agriculture financing were left out. Such banks have models of agric finance, anchored on the development of Small Medium and Large Scale Commercial Agriculture which have been on for years. They wondered what criteria the CBN used to narrow its choice to only two banks out of 24 banks in the country and why the apex bank single handedly did the selection when there was a committee with a mandate to do this job. The choice of what the CBN called ‘commercial farmers’ was also questioned by industry stakeholders. It was feared that the fund would, like in the past, go to emergency farmers who would emerge as commercial farmers.

Written by
Siaka Momoh
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